From the paper “The Impact of Technical Consultants on the Quality of their Clients’ Products” by Jerome Barthelemy, Strategic Management Journal, May 2017. This paper was presented with the ESSEC Foundation Award for Best Research at the 2017 ESSEC Foundation Awards.
Consulting is pervasive in many industries. Yet, the use of consultants remains controversial: Why would firms give away key activities to consultants? Do consultants perform these activities better than in-house employees? Does working with a consultant boost relative performance and increase firm competitiveness?
Answering these questions isn’t straight-forward, and most previous research has focused on the impact of consultants on absolute - rather than relative - performance. This is in part because most firms have access to consultants, which makes it difficult to assess their impact on relative performance and product quality. And perhaps more importantly, it can be very difficult to compare product quality across multiple companies.
My research “The Impact of Technical Consultants on the Quality of their Clients’ Products” looks to bridge this knowledge gap by taking a closer look the Bordeaux wine industry where these challenges are diminished: wines are comparable across many dimensions, including product quality which can be gauged using readily available tasting scores.
As the internationally renowned winemaking consultant Michel Rolland explains: Châteaux are just like companies, with staff overheads and taxes, and they have to make money to survive. And like other companies, they can choose to work (or not) with a technical consultant. The results of this research may help companies, even beyond the bordeaux wine industry, decide if and when working with a consultant is right for them. In fact, the decision should depend on what they want to achieve.
Better performance with ‘limited’ resources
Consistent with the “doctor-patient” model of management consulting literature, my findings show that firms with low performance due to low-quality resources benefit most from working with a consultant. This is because, when resource quality is low, technical consultants have a lot of room to add value by leveraging their best practices, like the use of oak barrels, smaller yields, and later harvests.
As winemaking consultant Michel Rolland put it: “My job is to make my client’s wine better. Even if the wine or the winery is awful, we have to do our best in the conditions we have.”
The problem is that firms with low-quality resources also tend to be less profitable than firms with high-quality resources. Thus, they may spend less on consulting fees. In other words, firms that need help are often less likely to hire technical consultants than firms that not really need help.
Of course, the results do not imply that wineries with high-quality terroirs do not benefit at all from the help of winemaking consultants. For instance, Château Latour has one of the best terroirs of the Bordeaux region. According to Frédéric Engerer, its director: “I can honestly say that in my view, after working 10 years with (Jacques and Eric Boissenot), their value in optimising the selection of our lots in orderto make the best possible assemblage (i.e., blend) is very clear”.
This phenomenon can clearly be observed in the Bordeaux wine industry where wineries with the best terroirs are more likely to hire technical consultants. However, they benefit less from their advice than wineries with the worst terroirs.
Better performance at minimal risk
Because the “best practices” of technical consultants have more certain performance implications than internally generated knowledge, they decrease the likelihood of extremely low performance, and thus reduce risk of failure. However, their lack of uniqueness also decreases the likelihood of extremely high performance.
In this sense, hiring technical consultants is a double-edged sword for their clients. On the one hand, their “best practices” have more certain performance implications than internally generated knowledge. Thus, they decrease the likelihood of extremely low relative product quality. On the other hand, uniqueness is a necessary condition for outstanding performance. Because “best practices” are less unique than internally generated knowledge, they also decrease the likelihood of extremely high relative product quality.
Exceptional performance whatever the cost
If a firm wants to achieve outstanding performance, hiring consultants may not be the right decision. Indeed, “playing it safe” can be an obstacle to achieving exceptional success. As Steve Jobs once explained: “We don’t hire consultants. The only consultants I’ve ever hired …is one firm to analyze Gateway’s retail strategy so I would not make some of the same mistakes they made [when launching Apple’s retail stores]. But we never hire consultants, per se. We just want to make great products.”
Interestingly, some of Apple’s products were huge successes, like the Apple II, Mac, iPod, iPhone, and iPad. Others, however, were complete failures, like the Lisa, Newton, and eWorld online service. In this sense, the exceptional success of Apple came at the cost of these failures.